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QUERY DESK

This is a limited access to the Query Desk, where we share some of the Queries we have answered. These are not recommendations, but a casual chat between a client and his advisor.

Client

13, Oct 17

Query

Subject: Risk and fear factor

Hi Amit,

After being in equity market and satllion member for months im starting gain knowledge and confidence and my mentality moved from investing for capital gains to financial freedom, thanks a lots n lots for that, but my problem is when(now ) i want to infuse my savings money fully into equities, lot of times i get fear that what will happen if markets crashes and i left with no new money to buy at dips(graet opportunity to buy good fundemental companies) that happened coz of crash (not following sip model and infusing saved money at a time) and how we will survive and overcome it, I have read that many great successfull investor who turned millionaires/billionaires in crisis like those times using that opportunity, how to be mentally prepared for that and how to train our mentailty, im seeing many great people saying patience and emotional disciple is more important than knowledge in market!!

Thanks!!

Admin Reply

14, Oct 17

Hi Sir,

Risk is like fire: If controlled it will help you; if uncontrolled it will rise up and destroy you. Most People who go bankrupt in the market are those who are leveraged, incase you are not leverage or not buying penny stocks, odds of you going bankrupt is less, though you can lose 20-40% of your capital. 

 

Will the Market Crash Someday? Absolutely it will. Stock Market crashes are real and it will happen atleast 3-4 times in my investing life of 30 years. We give a lot of weight to risk management, we always take calculated risk. Microfinance was our largest allocation during demonetization and we managed it well. I have seen 2008 very closely and believe me we are no where close to that.

 

When i was a trader, I had only one Goal i.e. to catch a Bubble and Believe me we will. From 2010-2013, all i have studied is bubbles and my favourite traders in the world are made by catching one big bubble like Paul Tudor Jones caught 1987 US Market Crash and 1991 Japanese Market Crash. George Sorus made bank of England Bankrupt by shorting the Pound.

 

Wise men say, and not without reason, that whoever wished to foresee the future might consult the past. The past says that there is always a sectorial bull market. 2009-2014 was a bear market and people made a fortune in Consumer and Pharma Companies.

 

Every big Bear Market needs super bad news, Euphoria and dry up of Liquidity. 2008 happened because the banks were going bankrupt (Bad News), Euphoria (Nifty had gone up 7x in 4 years between 2003 and 2007), Liquidity (Foriegn Banks in India were forced Sellers.

 

I have said before that if 9100 is broken on nifty, all bets are off, we will change our portfolio. We may be down 20% if that happens, but hopefully wont let it go worse.

 

Everyone i request you to see this video. https://www.youtube.com/watch?v=1bx0mlHDf_Q&t=2s

 

Overall if your with stallion for 5-10 years then your bet is on me not the market. Markets will Influence your returns if your with us only 1-2 years.

Client

10, Oct 17

Query

Subject: Multibagger stock like MRF

Dear sir. 

Which stock is the next MRF stock in India? Which stock at present is looking to give the same returns as MRF did?

Admin Reply

12, Oct 17

Hi sir,

MRF in last 20 years has given a return of 16%, in the last 10 years it has generated a return of 23%. The thing is that buy & rotate beats buy and Hold Investment Strategy and my conviction is that we will compound our clients money at more than 25%.

 

Just a Fun Fact which whatsapp Messages won't tell you - The Stock Price of MRF in 1995 was 2000/Share and in 2009 (depressed rates) it was 2000/Share. How many people would have held on to a non performer like MRF for 15 years?

 

Want more Fun? - MRF hit a Stock Price of 4150 in 1994 and it took 12 Years to see the Same price again in 2006. Time & Again market Teaches us, there is Difference between a Good Stock & a Good Company.

Client

06, Oct 17

Query

Subject: Stallion Portfolio Returns

Hi Amit,

I finish 1 year at Stallion Today and very happy that i choose the Right advisor. I started with 5 lakh and my trust in you increased a lot after the way you handled demonetization and i infused 20 Lakhs more in january and just wanted to compare my returns with the model portfolio. I did get some extra returns due to the query desk and my portfolio hit 50 lakhs today. My wife wants me to sell my invested amount but i know compounding creates wealth and i am sticking with it.

 

Thank You again and waiting for new my Portfolio.

Admin Reply

11, Oct 17

Hi Professor,

 

Thanks for the Kind Words.

 

Our Model Portfolio as on Today is up 72% in this year v/s 30% for Cnx Midcap v/s 22% for Nifty and 25% for Median mutual fund basket. you have beaten them all, including our Model portfolio. The good thing over the last 5 years of being in this business is that Model Portfolio corrects exactly the same Percentage as the Midcap Index whenever the Market Fall Happens, but rises 2-3x Faster than the Market. 

 

Stallion's Model Portfolio has high quality Midcap companies and only 10% of the Portfolio is below 1000 Crores of Market Cap so the risk is not so high. As far as dealing with family goes, its really tough to convince someone that stock market is not gambling, its a game of knowledge and the smartest ones will win. You should show them the Query Desk, we started this with the sole motive to convice our clients that they can dream big with stocks. The Number of Financial Freedom Queries we get these days is the proof that we have atleast started on the right note.

Client

06, Oct 17

Query

Subject: Prataap Snacks-Hold or sell

I got Prataap snacks IPO allotment. Should I hold it or sell it?

Thanks.

Admin Reply

11, Oct 17

Hi Sir,

One thing i have learned over time that Consumer Stocks are a Sellers market. The problem in consumer stocks is that there are only a few companies that can grow at more than 20% from here. The Fact the People are ready to pay 120x for D-Mart is just a showcase of how crazy people are about B2C business just because of the predictability of business. D-mart can Easily Grow from 120 Stores to 300 Stores in next 3 years without having any cannibalization. Infact my analyst was sharing with me that how the top 10 biggest wealth creators in the world are all Business to Consumer companies in last 10 years.

 

D-Mart near my locality had a 1 hour line, just to get inside the store this sunday as people wanted to shop for Diwali. I live in a Up-Market locality of Mumbai and these people are queing up for 1 hour just to save 5%. A Shopping to 5,000 would save them just 250Rps. Yesterday, i understood that if in India you can sell a commodity product cheaper than your competitors, you will be very very very rich in a few years. 

 

Coming to your Point In pratap, it trades at 65x Fy2019 but its the fastest growing consumer company at 27% after Dmart & Manpasand. I cant own these kind of stocks, but there are just too many people in the market who believe that Indians will have more Diamond Chips 10 years later, then they consume today, which will keep the stock price always expensive. 

 

Client

05, Oct 17

Query

Subject: Indiabulls Real Estate Query on Selling

Heyy there,

I am a new member of stallion Assets & this is my first query. I am quite excited about my journey with stallion assets.

I just gone through most of your reports & monthly updates. I know you at stallion asset are very bullish on large and organized real estate players. & Also I had bought some shares of Indiabulls real estate at avg. Price of 209, even before I became a member of stallion assets. But I saw that you have advised to book profits in the stock though you are bullish on the whole industry. What is reason behind that? Is there any fundamental change in the company?

Regards,

Harshal

Admin Reply

11, Oct 17

Hi Sir,

Indiabulls Real Estate was a Tactical bet rather than a Core Bet. The Promoter Sold more than 10% stake in last 3 months in open market. Our Fair Value of Indiabulls Real Estate was 280, the stock did touch 265-270 but when a promoter started selling, we don't try to fight it. There is nobody including us who knows more about the company than its owner, if he is selling, why should we be buying it.

 

 

Client

11, Sep 17

Query

Subject: Bull Market Over Warning

Hello Amit,

I am sure your used to compliments, you guys are doing a great job, very impressed . Just One question, What would make you believe the Bull Market is over?

Admin Reply

17, Sep 17

Hi Sir,

The Simple Answer is that Watch the market leaders i.e. Financials in this Bull Market, they are the stocks that have led the charge upward in this bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. We at Stallion Asset have made a lot of Wealth sticking with the leaders, and i strongly believe that if we are not with the leaders of the bull market we wont be Making a lot of money in this bull market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled. 

Client

09, Sep 17

Query

Subject: US market impact on Indian stocks

Hi Amitji! While the PE of Indian markets are high, the market cap to GDP ratio being only 68 against the historical maximum of 158 is a source of comfort.

The situation in the US is reverse. The market cap to GDP ratio is 133 against the historical max. of 149 during the past 47 years. It seems the US market could crash. What would be the impact of a US stock market crash on the model portfolio.

Admin Reply

16, Sep 17

Hi Sir,

Yesterday I tweeted this Picture with the comment "In FY2017, Equity including mutual fund was Only 3.8% of total asset of Indian households. In January 2008 this ratio was about 5.6%."

 

This Shows that Indian Retail Investors are Yet to Join the Big rally, and my belief is that we will end this Bull Market not at 5.6% like 2008 but at 8-10% as that time even Real Estate & Gold was doing well but there just isnt any asset class doing well except equity. We are going to have Immense Liquidity from Retail flows, and we will play the Financialization of savings theme. 

 

There Definitely will be 10-15% correction on the way, and thats how markets work, i am not Expecting a crash.

 

The US Markets are not going to Crash, the Dividend yield of Dow Jones is 2.8% whereas 10 year bonds are trading at 2.10% in the US. Till the Time Interest Rates remain at these levels, the Dow will sustain higher levels. Money flows where the yields are attractive and if you see the S&P was at the same level from 2000 to 2014, the Breakout has happened in 2014 after 14 years.

 

I had Written a Blog a few months back, you can have a look about all the data points you need. https://www.stallionasset.com/blog/9100-bull-trap-or-breakout/

 

I Personally look at stock specific and Sector Trends of Markets. Lets Take an Example of a green tea company which is growing at 40%, and expect the Growth to continue at 40% for next 3-4 years. You got it at 40 PE Ratio (Expensive), the EPS was 10 and the Stock Price was 400.

 

Assuming the Market Falls by 20% because of Some Thing going wrong in China or Greece or a American Bank Fail Etc, the new PE corrects to lets say 30.

 

A Year from today, the EPS will still grow at 40% as people in India Won't Stop Drinking Green Tea and become less health Concious if a bank has a problem in Greece or China is slowing down etc. So the EPS will Move from 10 to 14 (Growth of 40%) next year and You have a depressed PE Multiple of 30, i.e. the Stock Price is now 30*14= 420.

 

The New Stock Price even after Fall in Valuation Multiple is Higher than what we intially got it for as there was growth in the Counter. We need to be Certain to the Story, the rest ups and Downs are unpredictable consistenly.

 

I do use Technicals and my Chart Patterns tell me that the trend should continue a lot longer.

 

Please Note - I reserve the Right to be Wrong, this is just my Honest Opinion, Please Please manage your Risk.

Client

29, Aug 17

Query

Subject: HEG Limited

Hello Amit,

Your view on Graphite electrode comapanies and specially on Heg ltd. Promoters are buying from the market.Graphite electrodes prices crosses 20000$.

 

Admin Reply

06, Sep 17

Hi Sir,

The Story is long and we did some work on it. We didnt recommend it as its too cyclical for our kind for a Advisory Platform. The Prices of Graphite went up from 1200$ to 20000$ in China.

 

HEG has committed to sell 72% of its capacity at 1200$ to Steel manufacturing, these contracts are set once every year in Feb. Then Crisis in China happen and there is serious supply problem from China, and prices are expected to stay higher. 

 

The Prices may correct to 7000-10,000$ but not a lot below that is what people in Graphite Industry told me.

 

Now If HEG can get next year prices at 5,000$ they will do an EPS of 100 and if they can get a price of 10,000$ they will do 220 EPS. Since they have committed only 72% Capacity, they will sell the graphite at Spot prices of 20k this year but they can only expand capacity till 85%.

 

The Promoter has been buying aggresively from the Market and bought yesterday as well. I did tweet about it https://twitter.com/Amit_Jeswani1/status/900651813661065216 

 

I am bullish on HEG and believe we will see 900-1000 bucks within 6 months, though there can be dips. I do have a small position in it.

Client

26, Aug 17

Query

Subject: Pharma Stocks - Bottom

Sir,

Big investors are getting into Pharma stocks. In one of the responses, you have mentioned that you will be meeting lot of Pharma companies. What is your opinion on Pharma stocks now and whether will you be recommending them ?

Regards

Mohit 

Admin Reply

10, Sep 17

Hi Sir,

The Situation has gone from Bad to Worse in Pharma not only in India but around the Globe. The Pharma Sector has topped out in the US in the 2015 just like India, and failed to Perform. I track global Sector Indexes a lot to understand the Sectors in which Global money is flowing into. You can see the Pharma Index here. https://us.spindices.com/indices/equity/sp-pharmaceuticals-select-industry-index

 

 

Pharma correction may be over on Price but there is a lot of Time Correction pending. It was the Leader of the Previous Bull Market, it may consolidate for a few years before they start moving higher. Emerging Market Pharma is where everyone is looking currently in hyderabad, a trend that we had identified long back.

Client

25, Aug 17

Query

Subject: Future Enterprise Limited (FEL)

FEL has 2 core businesses - 1) manages backend retail infrastructure for Bharti Retail Limited for a fixed lease payment, 2) Manufature and sells fashion apparel to other Bharti Group Companies. The growth of the business is determined by growth of the retail businesses of the group. The company also has a few valauble non core assets on its books (Future Generali Life Insurance, Future Generali General Insurance, Future Supply Chain (DRHP filled with SEBI), Apollo & Goldmohur Mills etc.) which the company intends to sell to pare off its debt.

 

Valuation - Market Cap: 2000cr, Debt: 5000cr (know looks huge - but it is all  in form of NCD's with maturity more than 5 years). The management has guided that it will sell its non core investments and repay the entire debt in next 3 to 5 years. They are already walking the talk and have sold stakes in 9% Future Consumer Limited, 17% stake in Future Supply Chain Solutions, and 16% stake in Future Lifestyle during the last 18 months. Thus the company is expected to be debt free in 3 years and with an EBITDA 2017 of 1000cr, the EV/EBITDA works out to be 2.

 

Things to track - 

1. Asset Monetizationa and Debt repayment plan

2. Capex Spending

3. Capital Infusion which insurance business may demand till the stake is sold.

 

Please suggest your views on this. Looks like a bargain nuy to me.

 

Admin Reply

06, Sep 17

Hi Sir,

I Feel happy Reading Queries where there story is so well Explained. 

 

CLSA has been working the logistics business and lately they filed the DRHP. http://www.india.clsa.com/pdf/Future_Supply_Chain_Solutions_Limited_DRHP.pdf

 

 

Our Team Member Attended the AGM on the day mumbai was flooded (Probably he swimmed his way to the venue) as its not easy to get access to Kishore Biyani Directly.  The Debt will reduce by about 2000 Crores with the IPO general Insurance within 6 months. The EBITDA will be 1500 crores in FY2018 from about 1000 crores in FY2017. 

 

I believe the stock has a lot more value unlocking left with Rental Assets and stake sell of Supply Chain would also come soon. My Analyst worked a fair value of 65 in 6 months.

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